OED Division of Small Business Opportunity Follow up Report

Transcription

1 OED Division of Small Business Opportunity Follow up Report September 2013 Office of the Auditor Audit Services Division City and County of Denver Dennis J. Gallagher Auditor

2 The Auditor of the City and County of Denver is independently elected by the citizens of Denver. He is responsible for examining and evaluating the operations of City agencies for the purpose of ensuring the proper and efficient use of City resources and providing other audit services and information to City Council, the Mayor and the public to improve all aspects of Denver s government. He also chairs the City s Audit Committee. The Audit Committee is chaired by the Auditor and consists of seven members. The Audit Committee assists the Auditor in his oversight responsibilities of the integrity of the City s finances and operations, including the integrity of the City s financial statements. The Audit Committee is structured in a manner that ensures the independent oversight of City operations, thereby enhancing citizen confidence and avoiding any appearance of a conflict of interest. Audit Committee Dennis Gallagher, Chair Maurice Goodgaine Leslie Mitchell Rudolfo Payan Robert Bishop Jeffrey Hart Timothy O Brien, Vice-Chair Audit Staff Audrey Donovan, Deputy Director, CIA, CRMA Chris Horton, Audit Supervisor, PhD, CGAP, CRMA, CCSA Bonnie Doty, Senior Auditor, MGPS You can obtain copies of this report by contacting us at: Office of the Auditor 201 West Colfax Avenue, Department 705 Denver CO, (720) Fax (720) Or download and view an electronic copy by visiting our website at:

3 City and County of Denver 201 West Colfax Avenue, Department 705 Denver, Colorado FAX Dennis J. Gallagher Auditor September 19, 2013 Paul Washington, Executive Director Office of Economic Development City and County of Denver Re: Audit Follow-Up Report Dear Mr. Washington: In keeping with professional auditing standards and the Audit Services Division s policy, as authorized by D.R.M.C , our Division has a responsibility to monitor and follow up on audit recommendations to ensure audit findings are being addressed and to aid us in planning future audits. This report is to inform you that we have completed our follow up effort for the OED Division of Small Business Opportunity (DSBO) performance audit issued on April 21, Our review determined that DSBO has implemented six of the sixteen of the recommendations made in the audit report. Despite the DSBO s efforts, auditors determined that the risk associated with the audit team s initial findings has not been fully mitigated. As a result, our Division may revisit these risk areas in future audits to ensure appropriate corrective action is taken. For your reference, this report includes a Highlights page that provides background and summary information on the original audit and the completed follow up effort. Following the Highlights page is a detailed implementation status update for each recommendation. Although we did not update the status of recommendations that DSBO disagreed with, these recommendations are included in the status update section as a reference. This concludes audit follow up work related to this audit. I would like to express our sincere appreciation to you and to DSBO personnel who assisted us throughout the audit and follow up process. If you have any questions, please feel free to contact me at or Chris Horton, Internal Audit Supervisor, at Sincerely, KRM/BMD Kip Memmott, MA, CGAP, CRMA Director of Audit Services To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

4 cc: Honorable Michael Hancock, Mayor Honorable Members of City Council Members of Audit Committee Ms. Cary Kennedy, Deputy Mayor, Chief Financial Officer Ms. Janice Sinden, Chief of Staff Ms. Stephanie O Malley, Deputy Chief of Staff Ms. Beth Machann, Controller Mr. Doug Friednash, City Attorney Ms. Janna Young, City Council Executive Staff Director Mr. L. Michael Henry, Staff Director, Board of Ethics Mr. Chris Martinez, Director, OED Division of Small Business Opportunity To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

5 City and County of Denver Office of the Auditor Audit Services Division REPORT HIGHLIGHTS Office of Economic Development Division of Small Business Opportunity Performance Audit Follow up Report: September 2013 The OED Division of Small Business Opportunity has implemented six of sixteen recommendations made in the April 2011 audit report. Audit Background The Division of Small Business Opportunity (DSBO) is one of four major divisions within the City's Office of Economic Development (OED). DSBO manages the disadvantaged business programs, providing small and disadvantaged businesses with opportunities to contract with the City, including contracting opportunities at Denver International Airport (DIA). DSBO administers five certification programs out of its downtown and DIA offices and conducts community outreach activities to promote the certification programs and contracting opportunities available through the City. In addition, DSBO monitors contractors to ensure they use certified firms on applicable City contracts and adhere to applicable City ordinances, equal employment opportunity regulations and federal guidelines. Further, DSBO ensures timely payments to certified firms performing work on City contracts. Purpose The purpose of the audit was to: Assess the economy and efficiency of DSBO certification processes for Minority/Woman-Owned Business Enterprise and Small Business Enterprise programs. Highlights from Original Audit Performance management weaknesses Audit work identified weaknesses that created obstacles to assessing the effectiveness of DSBO and its certification programs. For example, we found a lack of alignment between DSBO s two participation goals, the annual and project goals, which represent the Division s key performance metrics. In addition, DSBO lacked a strategic plan or vision that clearly identified its goals, objectives, and performance measures and tied them to the overall mission so they could be consistently monitored. DSBO s performance reporting efforts also needed improvement. For instance, the required Annual Report and an internal scorecard lacked required information, and contained inaccuracies and basic mathematical errors. Further, the most recent annual report (2009) had not been completed by the due date required by ordinance. Internal processes needed refinement DSBO processes in relation to program requirements needed to be strengthened to enhance DSBO s ability to fulfill its mission. First, the Division did not process some new certification applications in a timely manner. Next, DSBO did not have a formal process for tracking complaint and reconsideration information to identify trends or appropriate controls for handling cash. In addition, DSBO had not implemented a mentor-protégé program required by Denver Revised Municipal Code. Finally, DSBO considered eliminating certification fees, which would place additional pressure on the General Fund in a time of significant City budget deficits. Findings at Follow up DSBO had not implemented a majority of the recommendations outlined in the 2011 audit. Although the agency may have in fact implemented some of the outstanding ten recommendations, auditors were unable to obtain complete information from DSBO due to poor response to follow-up inquiries. For a complete copy of this report, visit Audit Contact Person: Chris Horton chris.horton@denvergov.org

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7 Recommendations: Status of Implementation Recommendation Auditee Action Status Finding 1: The Lack of a Comprehensive Strategic Approach to Measuring Performance Inhibits Assessment of the Division s Impact 1.1 (a) To provide a more meaningful measure of program effectiveness, the Division should evaluate annually the program data available in its B2G database, including but not limited to graduations and disqualifications, to determine how this information could be used to augment the disparity study. Although DSBO tracks program data on a regular basis to determine progress toward goals, the Division does not evaluate data to determine how it could be used to augment the disparity study or to identify metrics that should be adjusted. In fact, DSBO officials stated that they rely solely on the disparity study, which is published every 5 years by an outside consultant, to define the programs goals and metrics. (b) To provide a more meaningful measure of program effectiveness, the Division should use the results of this data evaluation to assess the annual goals on a yearly basis and determine whether they should be adjusted. This would allow the Division to better link its annual participation goals to the project goals. 1.2 OED should evaluate current performance metrics in comparison to best practices for strategic planning. OED and the Division should then develop and track consistent program performance metrics over time. This activity should include identifying specific goals, objectives and performance measures for the Division that were developed in accordance with the best practice evaluation, and that link to OED s mission. The original audit found that DSBO s performance metrics were not varied enough or tracked consistently in accordance with best practices in performance management. Although OED had not evaluated DSBO metrics in comparison to best practices at the time of the follow up, DSBO had developed more diverse performance metrics to assess outcomes and effectiveness, in addition to output indicators. Further, DSBO and OED now track performance on a regular basis using electronic dashboards and scorecards, which allow officials to use up-to-date data to quickly determine how much progress the Division has made toward project goals and annual goals. P a g e 1 Office of the Auditor

8 Recommendations: Status of Implementation Recommendation Auditee Action Status 1.3 The Division should establish and document procedures for the preparation of the Annual Report to ensure the report contains all the required information and is completed by the due date in accordance with the ordinance. 1.4 The Division should develop formal procedures for obtaining and verifying data for performance reporting to include Division staff roles and responsibilities. During follow-up, DSBO officials stated that they had not and do not plan to develop written procedures for preparing the annual report. Further, auditors reviewed the most recent annual report (2011) and determined that the report did not contain all of the information required by ordinance. In addition, the 2011 report was not published by the due date of February 28, 2012, in accordance with ordinance. In August 2012, DSBO implemented written procedures for obtaining and verifying data, which include monitoring of staff. Finding 2: Some Division Processes and Required Functions Could Be Enhanced 2.1 The Division of Small Business Opportunity should complete its transition to fully online applications. 2.2 The Division of Small Business Opportunity should implement B2G s capability to feed data to multiple locations in the system. As of April 2013, DSBO implemented a fully online application system, which allows firms to submit all required materials electronically if they so choose. The online payment system had not yet been implemented at that time but was expected to go live in July DSBO did not respond to inquiries in July 2013 regarding the status of the online payment system. DSBO worked with B2G to add a copy button on key pages throughout the system, which allows DSBO staff to feed data to multiple locations relevant to the application. City and County of Denver P a g e 2

9 Recommendations: Status of Implementation Recommendation Auditee Action Status 2.3 Once the Division analyzes the data within its certification program database, it should use the results of that analysis to help assess the feasibility of two alternative approaches to certification renewal: risk base approach or expand timeframe for validity of certifications beyond one year. 2.4 If it begins renewing certifications less frequently, the Division should adjust the certification fee schedule for the local programs (M/WBE, SBE, and SBEC), to maintain, at minimum, a net neutral impact on certification renewal revenues. 2.5 The Division should develop and document procedures for formally recording and tracking complaints and requests for reconsideration, and utilize the knowledge gained to identify potential program improvements. 2.6 The Division should ensure fees are deposited in compliance with Fiscal Rule 3.4, Receipts and Deposits. In August 2012, DSBO implemented formal procedures to record and track complaints and requests for reconsideration. The procedures include a process for coordinating formal hearings with an outside hearings officer, when requested by a firm. In May 2013, DSBO provided auditors with written procedures for processing application and renewal fees. However, the procedures did not comply with Fiscal Rule 3.4 or address the issues outlined in the audit. For example, the procedures provided by DSBO did not specify any timeframes for making deposits. Disagree Disagree P a g e 3 Office of the Auditor

10 Recommendations: Status of Implementation Recommendation Auditee Action Status 2.7 The Division should develop and document procedures to segregate the duties of receiving checks and documenting them on the Revenue Control Log, and reconciling the Log with certification applications. 2.8 The Division should assess staffing resources to ensure the Division can continue to provide a robust outreach program. 2.9 The Division should develop and implement the required mentorprotégé program. In March 2013, DSBO officials stated that the Division was still in the process of developing procedures for proper segregation of duties related to fee handling. However, as of the closing of follow-up in July 2013, DSBO had failed to respond to repeated requests for a status update and/or a copy of the draft procedures. Without access to documentation showing that the recommendation was implemented, auditors categorized the recommendation as not implemented. In August 2012, DSBO implemented formal procedures to rotate DSBO staff among various outreach events, which will help to ensure that the outreach program continues regardless of fluctuations in dedicated staffing. In March 2013, DSBO demonstrated to auditors that the mentor-protégé program was in the planning stages, and they estimated that the program would be underway in the spring of However, as of the closing of follow-up in July 2013, DSBO had failed to respond to repeated requests for a status update on the program. Without access to documentation showing that the recommendation was implemented, auditors categorized the recommendation as not implemented. City and County of Denver P a g e 4

11 Recommendations: Status of Implementation Recommendation Auditee Action Status 2.10 The Division should work to retain existing program certification fees to avoid placing additional pressure on the General Fund The Division should evaluate certification fee structure for the local programs to determine whether the Division should capture more of the administrative costs of these certification programs. As of June 2013, DSBO had not yet evaluated its certification fee structure, and officials stated that they would not do so until later in the year in anticipation of a new ordinance regarding the certification program. According to DSBO, the new ordinance will not be considered until January 1, As of June 2013, DSBO had not yet evaluated its certification fee structure, and officials stated that they would not do so until later in the year in anticipation of a new ordinance regarding the certification program. According to DSBO, the new ordinance will not be considered until January 1, P a g e 5 Office of the Auditor

12 Conclusion While the OED Division of Small Business Opportunity (DSBO) has implemented some recommendations made in the April 2011 audit report, others have yet to be acted upon or fully implemented. Despite DSBO s efforts, auditors determined that the risk associated with the audit team s initial findings has not been fully mitigated. For example, due to a lack of evidence to demonstrate otherwise, the audit team believes that DSBO remains out of compliance with Fiscal Accountability Rules 2.4 and 3.4. Fiscal Rule 2.4 requires City agencies to establish appropriate internal controls, such as formal procedures, to ensure that cash handling and record reconciliation duties are assigned to separate individuals to ensure proper oversight. Fiscal Rule 3.4 requires City agencies to follow proper procedures for receiving and depositing payments, such as certification fees, in a timely manner. Auditors determined that written control procedures provided by DSBO during follow up did not meet the requirements of the two fiscal rules. As a result, the Audit Services Division may revisit these and other outstanding risk areas in future audits to ensure appropriate corrective action is taken. The Audit Services Division recognizes that DSBO may have in fact implemented more than the six recommendations noted in this report. However, after providing cursory information for follow up, DSBO failed to respond to repeated requests for information and updates over a four month period. In the absence of adequate and complete information, this report does not document the true extent of implementation of the original audit recommendations. As such, some recommendations have been closed as not implemented due to lack of information and responsiveness by the agency. City and County of Denver P a g e 6